Moneymakeover Advice for this couple - test of AI on Moneymakeover

Brendan Burgess

Brendan Burgess

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I have put this case study into Chat GPT and Claude before posting it on askaboutmoney.

Please respond so that I can compare the Askaboutmoney answers to AI.

Age 45
Wife’s age 43

Children aged 4 and 6

My income €80,000 a year – civil servant
Her income €50,000 a year – part-time in US multinational

Home value: €600,000
Mortgage : €450,000

Interest rate: Fixed at 3.5% ending in March 2027

20 year term so repayments are €2,609 per month

We have a €20,000 car loan with the Credit Union, but I don’t count that as borrowings as we have €20,000 in shares with them as well.

Pension fund - 15 years in Civil Service so a Defined Benefit Scheme – no AVCs

Her pension fund: Defined Contribution c. €20,000

Investments

Crypto worth €100,000
Educational Fund for children €50,000 in a Zurich fund

Wife has shares in her employer worth about €50,000 which will vest over the next three years

We also have €20,000 in a current account as a rainy day fund

Questions

We save about €1,000 per month. What is the best thing to do with it?

Our house is a bit small for a family of 4. It’s ok for the moment, but we will probably trade up in about 3 to 5 years.

I don’t want to touch the Zurich fund as that is for the kids’ education – is this the best way to save for their education?

We live quite frugally but don’t deny ourselves the basics.
 
Use the credit union share balance to clear the car loan.
Sell the crypto and potentially the Zurich fund to bring down your mortgage to a <50% LTV to avail of a better rate. Kids are 12-13 years away from college - should they choose to go down that route you will have cleared the mortgage and can pay for it from income.
Pensions are light (at least hers - little details available on his) - use spare funds to top up pension contributions.
After pensions, use remaining funds to overpay on the mortgage - you already have an emergency fund (which should be moved out of the current account and into something generating interest) and will not get >3.5% return on your savings.
Both kids likely to be in school in the next 18-24 months - does she plan to return to work full time then?
 
As stan says above pay off the car loan from the 20k in Credit Union. They are basically borrowing money from themselves and paying interest to the credit union.

Move the rainy day find to someone that pays more interest. RobinHood pay 5%. You could even put 10k in RobinHood and 10k in Trading212/TradeRepublic at 2.5% to split the potential risk of any of them getting into trouble or just IT issues.

Use the extra a month 1k a month and what ever they were paying to the car loan towards AVCs and next year, the new personal investment accounts. I would definitely look at getting rid of, at the very least, a big chunk of that crypto. A lot of their investments tied up in a very volatile asset. It might be worth paying it off the mortgage so that in a few years if you do trade up you have more equity in this property and as stan says above you could reduce the rate on the mortgage.

I don't really know enough about Zurich funds. But check out the fees on it and the tax (I assume it it exit tax and deemed disposal). It might be worth selling that off over the next few years and putting that money into the new personal investment account instead. They could put 24k a year into those accounts between the two of them and they would pay no tax until that accounts go over a fund value of 50k each. That might be a much better way to invest than the Zurich funds but like I say I am just guessing as to how the Zurich funds work so I could be way off.
 
So what is correct answer to judge the answers from AI by?

Absolutely clear
Use the CU shares to clear the loan

These major issues must be considered
  • You are borrowing at 3.5% to invest in crypto. This is crazy at any time but especially crazy for someone who is considering trading up. The crypto should be sold and the mortgage reduced. You are relying on the proceeds to trade up. Crypto is volatile. If it suddenly falls by 50%, your potential to trade up will be significantly affected, delayed and maybe even rendered impossible.

    We don’t know the CGT liability on the Crypto, but let’s assume it’s €20k for the purpose of the calculations. But the CGT liability does not matter, it should still be sold whatever the liability – the maximum is €31,000.
  • The eldest child is 6. The best way to save for their education is to pay down the mortgage. Again, you should not be borrowing at 3.5% to invest in a Zurich Fund. You get a guaranteed, no risk, tax-free return of 3.5% by paying down the mortgage
  • As soon as the shares vest, you should sell them. Again, as you are buying a house in the medium term, you can't handle the risk of them falling suddenly. And, as a general rule, it's not a good idea to have your income and a significant part of your wealth concentrated on one company.
Some minor issues to consider
  • Stan raises a very valid point that paying down the mortgage, reduces the LTV and thus the interest rate.
  • You are borrowing €20,000 at 3.5% to have an emergency fund. It is ok to borrow this for planned expenditure e.g. buying a new car, but it’s an expensive way to have an emergency fund. With two jobs and access to credit union loans in an emergency, you should consider paying this off your mortgage. However, it’s not a big issue either way. If you do keep an emergency fund, look for a deposit which pays interest.
Complex issue A – Trading up in 3 years

Accessible in 3 to 5 years if mortgage is not paid down

Net crypto: € 80k
Education fund: €50k
Wife’s shares: €50k
Rainy day fund: €20k

Total: €200k

The first question is can you trade up without selling your existing home?
You will want to buy a home for at least €800k
You will need to borrow €600k
You already have borrowing of €450k

Your combined salaries are €130k

So no can do.

You will need to sell your own home first before trading up.

So as soon as it becomes available, you should use the €200k to pay down the mortgage

This will leave you with

€350k of equity.

To buy a house worth €800k , you will need to borrow €450k

Should be just about to do it on salaries of €130k.

But, even if you do get mortgage approval for €450k, it does not mean that it's the right thing to do or that it is not risky. It will be a very high Loan to Income at your age. By all means, do it if you need to trade up, but be conscious of the risk you are taking and after buying the house, any excess income should be used to reduce the mortgage.

Complex issue B – the wife’s poor pension fund

Ideally, the wife should be maxing pension contributions. But the medium term priority is trading up and as we have seen this is borderline affordable. So the wife has to hold off making any pension contributions other than those which are matched by her employer.
 
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For me, the biggest benefit isn't necessarily getting AI to provide the definitive answer or deciding whether ChatGPT or Claude has come up with the 'correct' recommendation.

It's the ability to feed in a reasonably complex financial picture and have it quickly organise the information, identify the key issues, highlight potential risks, explore different strategies and explain the trade-offs involved.

More importantly, you can challenge it. Ask it to look at the situation from a different perspective, argue against its own recommendations, model alternative scenarios or explain what the consequences might be over a 5, 10 or 20-year period.

For example, in this case, the competing priorities of reducing the mortgage, managing investment risk, funding children's education, improving pension provision and potentially trading up are all interconnected. AI can help bring those moving parts together and illustrate how decisions in one area affect the others.

Where I think it is particularly powerful is in the iterative process. You can keep refining the information, introduce new assumptions and ask follow-up questions until you have a much clearer understanding of the options available.

Of course, it isn't infallible. It can make mistakes, misunderstand Irish tax rules or pension legislation, and confidently present an answer that needs checking. The quality of the output also depends heavily on the quality of the information and questions provided.

But used properly, and with important figures and technical advice independently verified, I think it can be an excellent complement to forums like this.

Ultimately, the value isn't necessarily in AI making the financial decisions for you. It's in helping you become much better informed before making them.
 
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